US sales of new homes drop 7 percent in December

Washington • U.S. sales of new homes fell in December for a second consecutive month but even with the pause at the end of the year, sales for all of 2013 climbed to the highest level in five years.

Sales of new homes dropped 7 percent last month to a seasonally adjusted annual rate of 414,000, the Commerce Department reported Monday. In November, sales had fallen 3.9 percent.

For the whole year, sales were up 16.4 percent to 428,000, the highest level since 2008.

It marked the second year that sales have risen after six consecutive annual declines as the housing industry was rocked by the collapse of a housing bubble. Sales of new homes peaked at 1.28 million in 2005.

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Economists said continued job gains and a strengthening in the overall economy should help boost sales further in 2014.

"We continue to be upbeat about the outlook for new home sales," said Paul Diggle, an economist at Capital Economics. "Mortgage rates are very low in a historical context."

Analysts said much of the December drop in sales likely reflected severe weather in many parts of the country during the month and some of those factors will likely act to depress sales further in January.

By region, sales fell the most in December in the Northeast, a decline of 36.4 percent. Sales were down 8.8 percent in the West and 7.3 percent in the South. Sales rose 17.6 percent in the Midwest.

The median price of a new home was $270,200 in December, up 4.6 percent from a year ago and up 0.6 percent from November. The median is the point where half the homes sell for more and half for less.

There were 171,000 new homes on the market at the end of December, a drop of 2.8 percent from November. At the December sales pace, that would represent a 5 month supply. That is lower than the six-month supply that economists view as healthy.

Housing was one of the strongest sectors of the recovery in the first half of 2013, but then it hit a lull during the summer when mortgage rates jumped on indications the Federal Reserve might soon start reducing the bond purchases it was making to keep long-term interest rates low.

But analysts are looking for housing to regain some of its lost momentum as the industry enters the all-important spring buying season. Analysts expect that continued improvements in the labor market will boost incomes and that will lead to stronger demand for homes.

Sales of previously occupied homes rebounded 1 percent in December helping that market to sales for all of 2013 of 5.09 million. That was the best performance since 2006 when sales totaled 6.48 million. However, the sales gains in both 2005 and 2006 represented an unsustainable housing boom which collapsed, helping drag the economy into a deep recession which triggered a painful retrenchment in housing.

Analysts expect housing will keep recovering in 2014 but they don't look for the sales gains to be as large as they were in 2013.

Economists at Global Insight predict that growth of existing home sales will slow a bit from the 8.8 percent gain in 2013 but still show a respectable increase of 5.1 percent in 2014.

Mortgage rates rose in the summer to nearly a full percentage point higher than they were in the spring, when they were at record lows. And a limited supply of homes on the market helped drive up prices. The combination of rising mortgage rates and rising prices made home buying less affordable, particularly for first-time buyers.

Builders started work on 923,000 new homes and apartments in 2013, up 18.3 percent from 2012. It was the fourth straight annual gain and the strongest construction pace since 2007 when 1.36 million homes were started.